Presented by Group 7:

Ambika Ravi Shankar – 14009

Arjun Dayal – 14014

Arjun Manoj – 14015

Ashish Sopori – 14018

Ashvita Ganesh – 14020

DIVIDEND PAYOUT-POLICY DRIVERS:

EVIDENCE FROM EMERGING COUNTRIES

• Main aim is to continue the debate on dividend payout policy in emerging countries

• One of the most controversial topics in the field of corporate finance

• Interest in examining the dividend behaviour in emerging countries

AIM OF THE RESEARCH

• Provide further findings for the Residual Cash Flow Theory through the relationship between Dividend Payout and Cash Position

• Test whether the results from previous findings (2003-11) have changed since

• Employ an up-to-date econometric technique that deals with the endogeneity problem

RESEARCH MOTIVE

• Refer extensively to statutes

• Judicial cases are considered the most important source of law

• Judges to pro-actively contribute to rules.

• Codes and statutes are designed to cover all eventualities

• Judges have a more limited role

• Past judgments are no more than loose guides

Common-law systems Civil-law systems

KEY TERMS

Common Law and Civil Law

Difference between common and civil law lies in the actual source of law.

Residual Cash Flow• Measurement of an investment's value creation and is also

known as cash value added. 

• From net adjusted cash flows for the accounting period subtract the cost of capital

• Provides a fairly realistic assessment of the kind of cash value a shareholder can expect in return for their capital

Signaling Theory• Company announcements of an increase in dividend payouts

act as an indicator of the firm possessing strong future prospects

• The rationale behind dividend signalling models stems from game theory

• Shareholders- Principal ; Management- Agent

• The outcome model : shareholders can use their rights to influence companies to pay dividends; this influence increases with the strength of rights.

• The substitution model : companies pay high dividends as a substitute for poor shareholders’ rights and to create a good reputation

AGENCY MODEL

• 2636 companies from 16 countries between 2003-2011

• Multi-country approach – two country variables: shareholders’ rights and legal origin

• Two estimation methods – OLS (Ordinary Least Squares) and GMM (Generalized Method of Moments)

METHODOLOGY

• Higher liquidity ratio, more dividends paid

• Corporate governance positively affects dividend payouts

• Pecking order theory – Negative association between debt and dividend payout

• Trade-off theory – Positive association between debt and dividend payout

HYPOTHESES IN THE CASE

• Policies for current year are similar to previous year.

• Average dividend payout ratio is 3.22• OLS estimates direct link between

liquidity and cash needs with dividends paid

• Size and corporate governance are linked to higher dividend payouts

MAJOR FINDINGS

• Growth indicates negativity but profitability indicates positivity

• Business cycle and risk don’t affect dividend policy

• Substitution model is well suited for emerging countries – stronger shareholder rights lead to more dividends

• High investor protection – more heed to cash needs

• Low investor protection – more importance to liquidity

• Similarity in emerging and developed countries

• Important implications for academics, practitioners and policy makers

CONCLUSION

THANK YOU